Community Seconds®: Financing Help for Down Payments and Closing Costs
Community Seconds® is not a mortgage. It's Fannie Mae's framework for pairing mortgages with approved down payment or closing cost assistance programs. Community Seconds® is how home buyers use support from state housing agencies, nonprofits, employers, or other eligible providers alongside a Fannie Mae conventional first mortgage.
Community Seconds® - Key Facts at a Glance
| Requirement | Community Seconds® Program Details |
|---|---|
| Eligible Uses | Down payment, closing costs, renovations, interest rate buydown |
| Eligible Providers | Governments, HFAs, nonprofits, Federal Home Loan Banks, employers, tribes |
| Maximum CLTV | Up to 105% |
| Loan Purpose | Purchases or limited cash-out refinances only |
| Property Type | 1–4 unit properties including condos, co-ops, and townhomes |
| Occupancy | Primary residence only |
| Loan Terms | Must be fixed-rate; no ARMs. |
| Repayment Options | Flexible repayment, forgiveness, or deferral allowed |
| Repayment Restrictions | No balloon payments before 15 years or first mortgage maturity |
Key Definitions
- Combined Loan-to-Value (CLTV)
- The ratio of all loans (first + subordinate) to the home's value. Community Seconds® allows CLTV up to 105%.
- Eligible Provider
- The source of Community Seconds® funds. Must be a government, nonprofit, HFA, employer, Federal Home Loan Bank, or recognized tribe — not a property seller or interested party.
- Premium Pricing
- When a lender raises the mortgage rate to give a borrower credits. Fannie Mae prohibits using premium pricing to fund Community Seconds® loans:contentReference[oaicite:4]4.
- Shared Appreciation Loan
- A type of Community Seconds® where the lender provides an interest-free loan in exchange for a share of future home appreciation:contentReference[oaicite:5]5.
- Deferred Payment Loan
- A structure where repayment is postponed, sometimes forgiven over time, to reduce borrower costs.
What Is Community Seconds®?
Community Seconds® is a type of secondary financing; a subordinate lien that works in combination with a conventional first mortgage. The most common subordinate liens are second mortgages and forgivable loans.
Here's how it works:
- First mortgage: You qualify for a Fannie Mae mortgage such as HomeReady® or other conventional loan.
- Community Seconds®: You also receive financing or assistance from an approved provider such as a government agency, housing finance agency, nonprofit, employer, or federally recognized tribe.
Homebuyer assistance for the Community Seconds® program may take several forms:
- Deferred-payment loan
- Forgivable loan
- Shared appreciation loan
- Amortizing second mortgage
Fannie Mae isn't directly involved with the issuance of a Community Seconds® loan. Rather, Fannie Mae's role is to ensure that any assistance used meets its general mortgage guidelines.
Common Types of Community Seconds®
| Type | How Repayment Works | Notes |
|---|---|---|
| Deferred-payment loan | Repayment starts after a set period | Payments begin when you sell or refinance |
| Forgivable loan | Balance is forgiven over time | Loan is erased if you stay in the home 5 years |
| Shared appreciation loan | Repayment tied to future home value | Repay a portion of your home's appreciation |
| Amortizing second mortgage | Fixed monthly payments required | Make regular payments like a standard loan |
What Can Community Seconds® Funds Be Used For?
Community Seconds® funds make homeownership more affordable by reducing the amount of upfront cash required to buy a home. Funds may be applied to specific housing-related costs, and never for general cash-out or non-housing purposes.
Eligible uses for Community Seconds® funds include:
- Down payment
- Closing costs
- Renovations or energy-efficient improvements
- Permanent interest rate buydowns
Quick Reference: Community Seconds® Use of Funds
| Use of Funds | Eligible with Community Seconds®? |
|---|---|
| Down payment | Yes |
| Closing costs | Yes |
| Renovations | Yes |
| Paying off personal loans | No |
| Cash-out for non-housing expenses | No |
| Energy-efficient improvements | Yes |
| Permanent interest rate buydowns | Yes |
| Vacation home purchase | No |
| Required reserves | Yes |
| Investment property purchase | No |
| Paying seller or agent commissions | No |
How Do Borrowers Use Community Seconds®?
The Community Seconds® program is linked to first mortgages so a home buyer would generally apply for it as part of their main mortgage approval.
Here are the typical steps to apply for Community Seconds®:
- The buyer applies for a conventional mortgage with their lender.
- The buyer searches for eligible home buyer assistance programs via a housing agency, nonprofit, employer, or other approved provider.
- The lender combines the mortgage and home buyer assistance into a single package under Fannie Mae's Community Seconds® rules.
Eligible home buyers can use Community Seconds® to borrow 105% combined loan-to-value (CLTV).
Who Is the Community Seconds® Program For?
Community Seconds® reduces how much money you need to buy a home and, in some cases, buyers can buy homes with nothing down or out-of-pocket.
A few examples Community Seconds® at work:
- A first-time home buyer in Chicago uses Community Seconds® to get a $10,000 grant from the Illinois Housing Development Authority for the down payment.
- A family in Atlanta combines a $7,500 down payment assistance program from the city with a Fannie Mae loan to lower their upfront costs.
- A travel nurse in Denver receives $8,000 in down payment help from their employer and uses Community Seconds® to pair it with a conventional mortgage.
- A home buyer in Phoenix uses Community Seconds® funds to pay for $12,000 in roof repairs and new insulation when purchasing an older home.
Community Seconds® can also be combined with other affordable housing programs like HomeReady® for even greater flexibility.
Community Seconds® in Action: Real-Life Examples
| Who Uses Community Seconds® | Why Borrowers Choose This Program |
|---|---|
| First-time home buyers | Reduce upfront costs to buy a home |
| Buyers using down payment assistance | Combine local, state, or employer grants with a Fannie Mae loan for extra flexibility |
| Moderate-income households | Community Seconds® may help moderate-income buyers qualify for a mortgage with less money saved for a down payment or closing costs. |
| Buyers planning renovations | Use funds to repair the home or add energy-efficient upgrades at purchase |
| Employers supporting employees | Help staff buy homes near work, which may improve retention and shorten commutes |
Community Seconds® Loan Requirements
- Eligible Uses: Down payment, closing costs, renovations, or permanent interest rate buydown.
- Eligible Providers: Government agencies, nonprofits, HFAs, Federal Home Loan Banks, employers, and tribes.
- Maximum CLTV: Up to 105% when combined with the first mortgage.
- Property Types: One- to four-unit principal residences, including certain manufactured housing.
- Loan Structure: Must be fixed-rate; repayment can be deferred, forgiven, or amortized. No balloon payments before 15 years or first mortgage maturity
- Loan Purpose: Purchases and limited cash-out refinances only — cash-out refinances not permitted.
- Premium Pricing Ban: First mortgage premium pricing cannot be used to fund Community Seconds®.
Community Seconds® vs Other Down Payment Assistance
Here's how Community Seconds® compares to other down payment assistance programs, including down payment grants, closing cost help, and second mortgages.
The biggest takeaway: Community Seconds® allows a combined loan-to-value (CLTV) up to 105%, which means buyers may borrow more than the home's price to cover things like down payment, closing costs, or even repairs and energy upgrades — something most other DPAs do not allow.
| Feature | Community Seconds® | Housing Grants | Standard Second Mortgage |
|---|---|---|---|
| Source | Governments, nonprofits, employers | Family, nonprofits | Banks/lenders |
| Repayment | Deferred, forgiven, or amortized | No repayment | Full repayment |
| Max CLTV | Up to 105% | Varies | Up to 100% |
| Eligible Uses | Down payment, closing costs, renovations, interest rate buydown | Down payment, closing costs | Down payment, closing costs |
| Combination Allowed | May be combined with other assistance programs | Sometimes allowed | Rarely allowed |
| Repayment Flexibility | Repayment may be deferred or forgiven | No repayment | Repayment required |
| Loan terms | Fixed rate only | Not applicable | Fixed or adjustable rate |
What To Do If...
I need down payment help but don't qualify for Community Seconds®
Community Seconds® has specific requirements, but there are other down payment assistance options available. Here are alternatives to consider:
| Alternative Program | Requirements | Credit Score | Down Payment |
|---|---|---|---|
| FHA Loan | No income limits | 580 | 3.5% |
| VA Loan | Military service | 620 | 0% |
| USDA Loan | Rural property | 640 | 0% |
| State Grants | Varies by state | Varies | 0-3% |
Check Your Local Options
| Source | What They Offer | How to Apply |
|---|---|---|
| State housing agency | Grants up to $15,000 | Search "[Your State] down payment assistance" |
| Local housing authority | Forgivable loans | Call your city/county housing office |
| Employer benefits | $5,000-$10,000 grants | Ask HR about homebuyer benefits |
| Nonprofit housing organizations | Closing cost help | Search for local housing nonprofits in your area |
I want flexible repayment
Community Seconds® allows various repayment structures that can make homeownership more affordable.
- Deferred payments to let you delay your homeownership costs
- Forgiveness options to reduce or eliminate your future mortgage payments
- Flexible terms that adapt to your personal financial needs
- No balloon payments in the first 15 years or until your first mortgage matures
Community Seconds® Repayment Types
| Type | Repayment Details | Good For |
|---|---|---|
| Deferred-payment loan | Pay later, after a set time | Need time to build equity |
| Forgivable loan | Balance drops over time | Plan to stay long-term |
| Shared appreciation loan | Pay based on future value | Expect home value to rise |
| Amortizing second mortgage | Fixed monthly payments | Want steady payments |
I was offered premium pricing to cover my down payment
Premium pricing occurs when a lender charges you a higher interest rate in exchange for credits that exceed your actual closing costs. These credits may be used for down payment assistance, second mortgages, or other benefits like gift cards or furniture.
Premium pricing lowers a person's financial hurdles to homeownership, but it may also increase a homeowner's monthly mortgage payment and can slow the rate at which a mortgage is paid down. Therefore, Fannie Mae prohibits premium pricing in conjunction with Community Seconds® as it goes against the ethos of the program.
Lenders cannot offer premium pricing if you use a Community Seconds®.
Alternatives to premium pricing to reduce upfront costs include:
- State down payment grants
- Local housing programs
- Employer assistance
- Nonprofit organizations
Why Premium Pricing Is Not Allowed With Community Seconds®
| Issue | Impact on You |
|---|---|
| Higher interest rate | Increases monthly payment and total loan cost |
| Long-term expense | Rate increase lasts for the entire loan term |
| Reduced affordability | May push your debt-to-income ratio too high |
| Program violation | Could disqualify you from Community Seconds® |
For more information, check Down Payment Assistance Programs in your state.
Community Seconds®: Common Limiting Beliefs
"I need to save all my down payment myself."
Community Seconds® allows you to cover part or all of your down payment with assistance.
"Only family can help with my down payment."
Community Seconds® expands help to governments, nonprofits, employers, and more.
"I'll be stuck with high payments on a second loan."
Many Community Seconds® loans feature deferred or forgiven repayment, reducing costs.
"I can't combine assistance programs."
Community Seconds® can be combined with HomeReady® or other affordable housing programs for even greater flexibility.
Frequently Asked Questions
Who can provide a Community Seconds® loan?
Eligible providers include government agencies, housing finance agencies, nonprofits, Federal Home Loan Banks, certain employers, and federally recognized tribes. Property sellers and other interested parties are not eligible.
What can Community Seconds® funds be used for?
Funds may be used for all or part of the down payment, closing costs, renovations (including energy improvements), or permanent interest rate buydowns.
What is the maximum CLTV allowed with Community Seconds®?
Borrowers may qualify for up to 105% combined loan-to-value (CLTV) when Community Seconds® is combined with a first mortgage.
Are cash-out refinances eligible with Community Seconds®?
No. Community Seconds® is only permitted with purchase loans or limited cash-out refinances.
How are Community Seconds® loans repaid?
Repayment terms vary by provider and may include deferred payments, gradual forgiveness, or full amortization. Loans must be fixed-rate and cannot have balloon payments before 15 years or the first mortgage maturity.
